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Feeling flat

“When elephants fight, the grass is trampled. Today, Canada is the grass.” That was the take from the Financial Times last weekend on the plight of the Canadian government, which has been caught in the crossfire of the Sino-US trade and tech row since detaining the CFO of telecom giant Huawei late last year.

Contract manufacturer Foxconn has been treading a similarly difficult path between the superpowers, with warnings to shareholders that the trade war could spell major trouble for profits.

Since Steve Jobs launched the iPhone in 2007 Apple has been Foxconn’s most important client. However, the Taipei-headquartered firm relies on millions of mainland Chinese workers to assemble its devices. The business model means that Foxconn’s boss Terry Gou can’t allow either country to feel he is taking sides.

The balancing act is a tricky one. Just over two years ago Foxconn pledged to invest $8.8 billion in a factory in Guangzhou to make flat panel screens for televisions, mobile phones and other smart devices. But Donald Trump had just been elected as president, calling for more businesses to put production on American soil. So Gou hedged by promising to invest a slightly larger amount in a similar factory in Wisconsin. Trump was delighted, predicting it would be the “eighth wonder of the world” and revive US manufacturing. “As Foxconn has discovered, there is no better place to build, hire, and grow than right here in the US,” he crowed.

So it was a shock late last month when Louis Woo, special assistant to Gou, told Reuters that Foxconn was evaluating its options for the Wisconsin plant on cost concerns.

“In terms of TV, we have no place in the US,” he added. “We can’t compete.”

The remarks led to a telephone call between Trump and Gou and what the Washington Post termed a “flip-flop” from Foxconn, which confirmed it was “moving forward” with the LCD screen factory.

Trump hailed the Taiwanese firm’s commitment although the deal has come under attack, not least for the original terms agreed by the former governor (before losing office last November, he promised more than $4.5 billion in subsidies and tax incentives to offset costs that Foxconn estimated at least 30% above a similar factory in China, according to news reports).

A study from the Wisconsin Legislative Fiscal Bureau, a non-partisan government agency, reckons that could keep the state in the red until at least 2042 and others have wondered how Wisconsin is ever going to be seriously competitive with lower-cost locations.

Jeffrey Dorfman, an economics professor at the University of Georgia, is one of the doubters, querying how the factory is going to source its components. “It takes years to set up supply chains and logistics,” he told the Washington Post. “You don’t just turn around on a dime.”

In the meantime the US media is watching the hiring figures closely, noting that just 122 positions have been advertised on the company’s website, some way short of the 13,000 workers that Foxconn has promised to employ.

All of this might be inducing grim satisfaction in Guangzhou. The project there, which is a joint venture with Foxconn’s Japanese subsidiary Sharp, is the largest ever overseas manufacturing investment in the city and has been hailed as a signal that Guangdong can still win massive manufacturing contracts, despite rising prices for land and labour.

Yet last month the Nikkei newspaper flagged problems in Guangzhou as well, claiming delays of at least six months in construction, with speculation of a deliberate go-slow until the outcome of the trade war is clearer.

Stung by the reports Foxconn put out a statement denying the claims and local media outlets rallied to the cause, expressing confidence that deadlines would be met. Foxconn has already invested Rmb32 billion ($4.74 billion) in the project and the core construction work is complete, Nanfang Daily insisted, predicting the facility will commence production in October.

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